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Maximizing your utility since 2013

Happiness is a relative concept. Specifically, how happy you are depends on what your aspirations are, or how high you set the bar. For instance, if you are a blue-collar worker with a relatively low salary, and your current goal is to go on a camping trip to the Rockies, and you can do it, then, ceteris paribus, you are probably happier than a rich investment banker whose goal is to buy a private island but cannot do it because his bonus wasn’t as high as expected.

Of course an economist might ask, does the probability that one’s aspirations are fulfilled vary with income? One would expect that the answer is yes. But actually, it is not always the case. Indeed, if you assume aspirations don’t differ much by socioeconomic status, then of course higher income individuals should be in a better position to fulfill them.

Researchers have shown that early childhood (pre-primary) education is quite important. Skill differences among children already exist by the time they start primary school, and they’re likely to persist over time. But how do these skill differences arise?

Factors including income, family structure, parental education, maternal employment, child care, school quality and neighborhood characteristics all play a role. But the subject of this post is maternal time investment in early childhood.

Whether inequality affects growth is an interesting question for at least two reasons. First, today inequality is a hot topic, and many claim it is bad for our economy. Is there any truth to these claims? Should we actively try to reduce inequality?

Second, if wealth distribution matters for growth, then differences in development among countries can potentially be (partially) explained by their initial, historical wealth distributions. For instance, if inequality is good for growth, then it could be that countries with high inequality at the dawn of the Industrial Revolution (i.e. when growth kicked off) have done better than those with low inequality.

So there is an article circulating online (citing a study by the National Low-Income Housing Coalition) stating that a full-time worker earning minimum wage can’t afford to rent a one-bedroom apartment anywhere in the US. The article seems to hint at the fact that this is the result of too low minimum wages (and too high inequality) in the US.

But is the situation any different in countries with lower inequality and more generous welfare states? What do the figures in Europe look like? In this post, I perform the same analysis for Europe.

Risk preferences (i.e. whether someone likes or dislikes risk) are important for a variety of decisions. These include for instance career choice or financial decisions. But just how much do risk preferences vary over one’s lifetime?

Studies have shown that there can be macro shocks to risk attitudes. This could happen for instance when natural disasters, civil conflicts or financial crises happen. Micro (individual) level shocks to risk preferences have also been documented in case of job displacement or serious health diagnoses. This post presents evidence that becoming a parent also affects risk preferences.

Cultural differences between countries are quite large, and likely affect differences in economic development. But how did these differences arise in the first place? Consider recent history: it’s not a stretch to believe that Europeans who immigrated to the US were generally individualistic, adventurous, entrepreneurial people who potentially did not fit in well with their existing society; they were possibly non-conformist, less obedient that those who stayed.

Values such as individualism, innovativeness and entrepreneurialism gave these immigrants an edge in the longer term, and this made the US very successful, even relative to Europe. Can such a story apply over the much longer term? Can it explain how cultures diverged thousands of years ago?

Robots are becoming more sophisticated and common, and consequently they will inevitably displace a large number of workers (they have already done so). But historically, while technological progress generally resulted in painful transitory periods, in the long run it was always for the better. The question is whether this will remain the case.

Recently, even middle class jobs were replaced by machines because of the IT revolution. This might exacerbate inequality as the upper classes and those who can adapt to the new technologies will be able to reap the benefits of higher productivity (thanks to machines), but others will lose their jobs or will be forced to lower paying positions. Until now, for the most part new jobs have been created for the displaced workers in various industries. But what if this ceases to continue? What if labor gets replaced by robots and no new labor-intensive jobs arise?